FINRA released its 2018 Regulatory and Examination Priorities Letter (“2018 Letter”) on January 8, 2018.  The 2018 Letter highlights areas of emphasis for FINRA in the coming year.  While many of the areas of focus are similar to those included in the 2017 Regulatory and Examination Priorities Letter—including continued focus on high-risk brokers, fraud, firms’ surveillance systems, cybersecurity protocols, and protecting vulnerable investors—there are additional topics included in the 2018 Letter based on market developments throughout 2017 and the results of FINRA’s 2017 exam program, summarized in the 2017 Report on FINRA Examination Findings.

Continue Reading FINRA Declares Regulatory and Examination Priorities for 2018

In December 2017, the US Department of Justice, Criminal Division’s Computer Crime and Intellectual Property Section (“DOJ”) released guidance for law enforcement to follow when seeking data stored by an entity with a cloud service provider.[1]  In short, DOJ suggests that prosecutors should seek data directly from the company, rather than its cloud service provider, so long as doing so will not compromise the investigation. Continue Reading New DOJ Guidelines on Collecting Cloud–Based Data

On January 12, 2018, the Supreme Court granted a writ of certiorari in Raymond J. Lucia Cos., Inc. v. SEC, No. 17 130,[1] a case raising a key constitutional issue relating to the manner in which the U.S. Securities and Exchange Commission’s (SEC or Commission) appoints its administrative law judges (ALJs).  The Court will decide “[w]hether administrative law judges of the [SEC] are Officers of the United States within the meaning of the Appointments Clause.”  The answer to this question matters because if SEC ALJs are “officers,” then they should have been appointed by the Commission itself instead of hired through traditional government channels—and the Commission only exercised its ALJ appointment authority in late-2017.  Although the question is limited to SEC ALJs, any decision could also impact ALJs at other agencies government-wide. Continue Reading Supreme Court Grants Certiorari on the Constitutionality of SEC ALJ Appointments– What This Means for the Securities Industry

The recent uptick in the mergers and acquisitions market in Brazil comes at a time of great upheaval in Brazil. Brazil’s sweeping anticorruption investigation, which is more than three years old, has resulted in more than 844 search and seizure warrants, 201 arrest warrants, 158 whistleblower agreements, and 10 corporate settlements (known in Brazil as “leniency agreements”) with some of the largest companies in Brazil. Some companies implicated in the scandal have been forced to restructure or file for bankruptcy as a result of their involvement.

Fortunately there is a well-worn path, informed by past settlements as well as guidance from U.S. regulators, that helps investors either avoid buying tainted companies or lessen the risk of exposure to corruption-related liability when making investments in tainted companies. To avoid or reduce these risks, investors need to be aware of and plan for circumstances unique to the Brazilian context. Appropriate diligence and early planning can help to minimize the risks and capitalize on the opportunities presented by the Brazil M&A market.

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More than six months have passed since the Supreme Court held, in Kokesh v. SEC, 137 S. Ct. 1635 (2017), that the Securities and Exchange Commission’s (SEC or Commission) disgorgement power constitutes a penalty subject to a five-year statute of limitations.  As expected, the Supreme Court’s holding on the penal nature of SEC disgorgement has spurred  defendants to seek to broaden its application to other contexts.  Most fundamentally, this includes whether the SEC has the statutory authority to seek disgorgement at all.  To date, courts have mostly turned aside these challenges.  At the same time, however, litigants have grown more creative in their attacks, evidenced by a class action suit seeking reimbursement of nearly $15 billion from the SEC of certain historical disgorgement payments.[1]

Below, we look back at how the lower courts have handled post-Kokesh challenges to the SEC’s disgorgement power and other so-called equitable remedies to date.  Continue Reading Kokesh v. SEC: Half a Year On

This past year, which marked the 40th anniversary of the Foreign Corrupt Practices Act, saw significant anti-corruption developments in the United States and abroad, capped by the announcement of a new FCPA corporate enforcement policy by the U.S. Department of Justice.  As the year began with a new administration, however, there was initially some uncertainty as to how much the new administration would prioritize FCPA enforcement.   Perhaps wanting to put this concern to rest, President Trump’s appointees quickly emphasized that FCPA enforcement was “as alive as ever”  with Attorney General Jeff Sessions promising that the DOJ would “continue to strongly enforce the FCPA and other anti-corruption laws.”   While there were fewer total FCPA corporate resolutions in 2017 than in 2016, the DOJ concluded two of the largest global settlements in FCPA history this year.  The DOJ also demonstrated a continued and expanded focus on anti-corruption compliance, aided by its issuance in February of new guidance on how the DOJ would evaluate the effectiveness of compliance programs.

This memo examines some of these key FCPA developments in greater detail and provides our analysis of what their impact may be in 2018.

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In a significant development for companies relating to the Foreign Corrupt Practices Act (FCPA), in late November the U.S. Department of Justice (DOJ) announced a new FCPA Corporate Enforcement Policy (the Enforcement Policy).[1]

The Enforcement Policy is designed to encourage companies to voluntarily disclose misconduct by providing greater transparency concerning the amount of credit the DOJ will give to companies that self-report, fully cooperate and appropriately remediate misconduct.  Notably, in announcing the Enforcement Policy, the DOJ highlighted the continued critical role that anti-corruption compliance programs play in its evaluation of eligibility under the Enforcement Policy. Continue Reading The New DOJ FCPA Corporate Enforcement Policy Highlights the Continued Importance of Anti-Corruption Compliance

On December 5, 2017, a Magistrate Judge in the United States District Court for the Southern District of Florida held in SEC v. Herrera that the “oral download” of external counsel’s interview notes to the Securities and Exchange Commission waived protection from disclosure under the attorney work product doctrine.  As a result of the decision, issued in an SEC enforcement action, counsel was ordered to disclose to certain former employees of its client those interview notes that were orally downloaded to the SEC.  Herrera highlights issues that internal and external lawyers should carefully consider when conducting internal investigations and particularly when providing downloads to the government of material that may be privileged or subject to work product protection.

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The SEC has recently signaled an increased concern with the offerings and marketing of Initial Coin Offerings (“ICOs”),[1] which should be of interest to companies and institutions involved with ICOs.  On November 1, 2017, the SEC Division of Enforcement and Office of Compliance Inspections and Examinations (“OCIE”) jointly issued a public statement warning celebrities and other influencers promoting Initial Coin Offerings (“ICOs”) about potential violations of a host of federal securities laws, including the anti-touting and anti-fraud provisions of the federal securities laws.  Specifically, the public statement noted that endorsements may be unlawful if they do not “disclose the nature, source, and amount of any compensation paid, directly or indirectly . . . in exchange for the endorsement.,” and that endorsers may also face liability for potential violations of the anti-fraud provisions, for participation in an unregistered securities offering, and for acting as unregistered brokers.  The public statement also noted that investment decisions should not be based solely on an endorsement and cautioned that “celebrity endorsement may appear unbiased, but instead be part of a paid promotion.”  The public statement follows an investigative report issued by the Division of Enforcement on July 25, 2017, which announced that blockchain technology-based coins or tokens sold in an ICO may be a form of security under the Securities Act of 1933 and the Securities Exchange Act of 1934.

The SEC’s announcement follows recent endorsements of such ICOs by celebrities such as Floyd Mayweather, DJ Khaled, Paris Hilton and Jamie Foxx, who each used their social media platforms to promote ICOs in the past months.  According to an article published byThe New York Times five days before the SEC’s public announcement, celebrity endorsements have helped raise $3.2 billion in ICOs this year, which is a 3,000 percent increase over the total amount raised in ICOs last year.

In its statement, the SEC said it “will continue to focus on these types of promotions to protect investors and to ensure compliance with the securities laws.”  Additionally, the SEC Office of Investor Education and Advocacy posted an Investor Alert on their website the same day cautioning against investment decisions based on endorsements from celebrities and encouraging investors to report any possible securities fraud to the SEC.  These recent pronouncements indicate a dovetailing of recent areas of focus for the SEC’s enforcement program—new technologies that expand the scope and ease of securities offerings with increased efforts to focus enforcement resources on areas having the potential to harm retail investors.

Following the SEC’s public statement and Investor Alert signaling increased attention on ICOs,  the SEC announced that it had filed charges against PlexCorps and two of its principals based on an alleged ICO fraud.  PlexCorps had raised up to $15 million in an ICO this year by promising a 13-fold profit in less than one month.  The company has been charged with violating anti-fraud provisions and the registration provision of the federal securities laws. These charges are the first filed by the SEC’s Cyber Unit, which was created in September 2017.  Robert Cohen, the Chief of the Cyber Unit, stated “[t]his first Cyber Unit case hits all the characteristics of a full-fledged cyber scam and is exactly the kind of misconduct the unit will be pursuing.” To read more about this case, please see our previous article.

[1] ICOs are fundraising mechanisms, similar to crowdfunding, in which companies create and sell new virtual currency, in the form of blockchain-based coins or tokens.

Last Thursday, November 30, 2017, Argentina promulgated its Corporate Criminal Liability Law (Ley No. 27,401).  This new law, which will enter into force early next year, establishes criminal liability for corporate entities, whether national or foreign, that engage in corruption offenses such as national and transnational bribery and influence peddling, unlawful enrichment of public officials, and the publication of false or incomplete financial information to conceal bribery or influence peddling.

Among other interesting features, Argentina’s Corporate Criminal Liability Law sets out sanctions specific to corporate entities (including fines of up to 5 times the amount of the improper benefit obtained or that could have been obtained), provisions for the exclusion or reduction of liability, as well as regulations relating to compliance programs and cooperation agreements.

The full text of Argentina’s Corporate Criminal Liability Law can be accessed here.